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Pakistan Refinery Limited
Annual Report 1998
Contents
Company Information
Notice
Chairman's Review
Directors' Report
Disclosure of Year 2000 Compliance of
Computer Systems
Pattern of holding of shares
Ten Years at a Glance
Auditors' Report
Balance Sheet
Profit and Loss Account
Cash Flow Statement
Notes to the Accounts
Company Information
Chairman
Salahuddin Qureshi
Directors
Iftikhar Alam
Ardeshir R. Cowasjee
Ahmed Dawood
T. V. Higgins
G. L. Mahan
G. A. Sabri
D. M. Sadler
Arshad Said
Mohammadmian Soomro
General Manager &
Chief Executive
S. Viqar Salahuddin
Secretary
Mrs. Fawzia Hafeez
Auditors
A. F. Ferguson & Co.
Registered Office
Korangi Creek Road, Karachi.
Registrar and Share Registration Office
Ferguson Associates (Pvt) Ltd.
P.O. Box 4716
State Life Building 1-A
Off. I. I. Chundrigar Road
Karachi-74000.
Notice
Notice is hereby given that the Thirty Eighth Annual General Meeting of the Company will be held on Wednesday,
December 16, 1998 at 10.30 a.m. at Marriot Hotel, Abdullah Haroon Road, Karachi to transact the following business:
ORDINARY BUSINESS
1. To receive and consider the Balance Sheet and Profit and Loss Account together with the Directors' Report
for the year ended June 30, 1998.
2. To declare the final dividend.
3. To appoint Auditors for the next accounting period and to fix their remuneration.
The Share Transfer Books of the Company will remain closed from December 3, 1998 to December 16, 1998 (both
days inclusive) when no transfer of shares will be accepted for registration.
				By Order of the Board
				MRS. FAWZIA HAFEEZ
Karachi: September 9, 1998				Secretary
Notes:
(i) A member entitled to be present and vote at the meeting may appoint a proxy to attend, speak and vote instead
of him. A proxy need not also be a member of the Company. Proxies duly stamped and signed, and the Power ....
of Attorney or other authority (if any) under which they are signed or a notorially certified copy of that power
or authority must be deposited at the Registered Office of the Company not less than 48 hours before the time
of the meeting. An approved form of proxy is enclosed.
(ii) The minutes of the previous meeting are available at the Registered Office of the Company.
Chairman's Review
On behalf of the Board of Directors, I welcome you to the 38th Annual General Meeting of the Company.
CRUDE OIL CONTRACTS AND PRICES
The company continued to import its crude oil requirements from National Iranian Oil Company and Abu Dhabi
National Oil Company. The crude oil imported was shared with National Refinery Limited from whom Arabian
Light crude was purchased in return, as has been the practice in the past. Besides the imported crude oil, indigenous
crude and condensate were also purchased and processed.
The crude oil prices during the year under review declined sharply and averaged $ 15.33 per barrel compared to
$ 19.92 per barrel in the previous year. The present level of international crude oil prices is around $ 12.07 per
barrel.
PRODUCTION
The throughput achieved during the year was 2.349 million tons compared to 2.321 million tons in the previous
year. The increase in throughput is due to normal refinery operations as there was no planned maintenance shutdown
during the year under review. The throughput during the year included 0.592 million tons of indigenous crude oil
and condensate.
PROFITABILITY
The company continued to operate under the Import Parity Formula under which the rate of return from refining
operations is limited between 10-40 % of the paid-up capital. During the year under review, product prices plunged
at a comparatively higher rate than the decline in crude prices. As a result, the company sustained a loss of Rs. 518.2
million after tax from refinery operations. Consequently, the Government has to reimburse Rs. 548.7 million to
enable the company to make a profit after tax of 10% on paid-up capital, 'from its refinery operations.
Provision for taxation has been made on the basis of 0.5% of turnover, in accordance with section 80D of the Income
Tax Ordinance, 1979. The application of turnover tax has also contributed to the increased loss after tax although
the element of development surcharge recovered by companies from its customers has been exempted by the Central
Board of Revenue through its circular issued on July 1, 1998.
The Board had appreciated the efforts made by the management to recover the critically high level of overdue
receivables from associated companies as reported to you last year.
PERSONNEL
The relations of the Management with the workers and their union remained cordial. The two year agreement with
the employees' union expired on June 30, 1997 and was again negotiated and signed for a further period of two
years effective July 1997.
The company again maintained a high standard of safety and no major injury had occurred during the year.
Efforts continue to provide training to staff and workers at all levels within and outside the company.
OUTLOOK
Refining margins continue to be depressed as a result of which the company is presently not in a position to undertake
projects requiring substantial capital investment. However, investment in projects that contribute towards improving
product quality and enhancing profitability are being implemented. Work on the installation of a Desalter is already
underway and engineering design work to revamp the Platformer unit is in progress. Initial financial evaluations
are being done to explore the possibility of improving the product slate by enhancing production of middle distillates
and reducing residual fuel oil.
The crude slate of the refinery is undergoing a change as a result of which Iranian Light crude will be substituted
by Arabian Light crudes in the coming year. This change is likely to improve refining economics.
The company is also intensifying its efforts with the Government to enhance its product prices under the Import
Parity Pricing formula to enable improved recovery of costs incurred in importing crude oil.
ACKNOWLEDGEMENT
Finally, I take this opportunity to express my thanks to all my colleagues on the Board for their valuable contribution
in running the affairs of the company.
I also like to congratulate the Management and the employees of the Company for their dedication and hard work
in maintaining and running the refinery efficiently.
September 9, 1998				SALAHUDDIN QURESHI
				CHAIRMAN
DIRECTORS' REPORT
The Directors of your company are pleased to present their Report together with the Accounts and Auditor's Report
for the year ended June 30, 1998.
					1998	1997
					Rupees	Rupees
					('000)	('000)
1. FINANCIAL RESULTS
These are summarised below:
Profit after tax from refinery operations					20,000	20,000
Income net of tax from non-refinery operations					27,133	24,043
Unappropriated profit brought forward					81	38
					---------------	---------------
					47,214	44,081
					==========	==========
APPROPRIATIONS
Interim Divided of 10%
(equivalent of Re. 1.00 per share)					20,000	--
Proposed Final Dividend of 13%
(equivalent of Rs. 1.30 per share)					26,000	40,000
Transfer to General Reserve					1,000	4,000
					---------------	---------------
					47,000	44,000
					==========	==========
Leaving a carry over to next year
an unappropriated profit of					214	81
					==========	==========
The earnings per share for the year amounted to Rs. 2.36 (1997: 2.20).
The company continues to operate under the import parity pricing formula under which the rate of return
from refinery operations is limited between 10% to 40% of the paid-up capital. The year under review saw
a continual decrease in prices of crude oil which ranged between $19.22 to $11.21 per barrel with an average
of about $ 15.33 per barrel (1997: $ 19.92 per barrel). The prices of our finished products based on the
import parity formula fell even more sharply than those of crude. Consequently the resultant margins were
inadequate to cover costs which were also affected by the inflationary level within the country.
The application of turnover tax of 0.5% also contributed significantly to the loss after tax from refinery
operations. The net effect is that the government has to reimburse Rs. 548.7 million to enable the company
to make a 10% profit from its refinery operations. Under the circumstances, the Directors have proposed
a final dividend of 13%, in addition to the interim dividend of 10% already paid, on the issued and paid-
up capital of the company.
2. TRADE DEBTS
Your Directors are pleased to inform you that the company's management has been very successful in
controlling the level of overdue receivables from associated undertakings. An analysis of the trade debts
as at June 30, 1998 is shown below:
				Rs./mm
			As at June		As at June
			30, 1998		30, 1997
			Total	Overdue	Total	Overdue
Associated Undertakings
Invoiced sales			794.0	456.8	1704.2	1087.6
Less: PRL payables			128.7		219.6
			---------------		---------------
			665.3		1484.6
Direct customers			258.4		98.3
			---------------		---------------
			923.7		1582.9
			==========		==========
The financing costs due from associated undertakings against overdue trade debts is Rs. 293.6 million upto
June 30, 1998 (1997: Rs. 85.5 million). These costs are recognised on a 'receipts basis' in the accounts.
The trade debts as at June 30, 1998 have been subsequently received in full.
3. RECEIVABLE FROM GOVERNMENT
The receivable from the government at the year end stood at Rs. 249.7 million, which is Rs. 237 million
less as compared to the previous year. The reduction is due to intense efforts of your company's management
to reduce costs and enhance profit yields and on the other hand to the higher level of ex-refinery prices
as compared to the company's entitled prices under the Import Parity Pricing formula. The favourable ex-
refinery prices enabled the company to maintain tight control on its liquidity position at a time when overdue
outstandings were increasing rapidly.
Your Board wishes to express its satisfaction at the efforts made by the company's management to enhance
its profitability without which the Government would have borne a significantly greater reimbursement to
make up the 10% return on paid-up capital.
The receivable from the Government is largely offset by the amount owed by the company to it in respect
of government share and royalty on local crude oil purchases. The company is continuing to make its best
efforts to reduce government receivables and optimise its liquidity position.
4. DIRECTORS
Mr. Mohammadmian Soomro and Mr. Iftikhar Alam were co-opted as directors on the Board in place of
Mr. M. B. Abbasi and Mr. M. M. Farid.
The Board wishes to put on record its appreciation of the useful services rendered by the outgoing directors.
5. AUDITORS
The present auditors, Messrs. A. F. Ferguson & Co., retire and being eligible, offer themselves for re-
appointment.
6. PATTERN OF SHAREHOLDINGS
The pattern of shareholding in the Company as at June 30, 1998 is included in the Annual Report Booklet.
				By Order of the Board of Directors
Karachi' September 9, 1998				SALAHUDDIN QURESHI
				Chairman
DISCLOSURE OF YEAR 2000 COMPLIANCE OF
COMPUTER SYSTEMS
In accordance with the requirements of Karachi Stock Exchange (Guarantee) Limited, shareholders are hereby
informed about the efforts taken to deal with the Year 2000 problem or "The Millennium Bug".
In early 1998, Pakistan Refinery Limited recognised the Year 2000 problem and started taking effective steps to
ensure that its computer systems are Year 2000 compliant. As part of the first phase, all computer hardware and
software were tested to ensure that these were Year 2000 complaint. Where considered necessary, the vendors of
the hardware/software were also contacted. This exercise was duly completed in June 19'98.
The most critical hardware and related software which were found non compliant were our main IMB AS-400 computer
and its operating system and the various financial applications thereon. This machine has now been replaced with
another IMB As-400 and all the financial applications are in the process of being modified to make them compliant
with Year 2000. This process including testing thereof is expected to be completed before the end of 1998.
Some of the Personal Computers (PC's) and the associated software running thereon are also not Year 2000 compliant.
Since these are stand alone machines, these are considered non-critical and will gradually be replaced in phases.
For all other electronic equipments, their compliance testing including confirmation from relevant manufacturers/
suppliers have already been obtained and wherever changes are required, these have been initiated.
All major suppliers, marketing companies, utility companies, banks etc. have also been approached to ensure that
their systems are also Year 2000 compliant so that PRL's operations are not affected because of their non compliant
computer systems. All the companies have confirmed that this issue is already being given top priority by them
and target dates have also been provided to us indicating when their computer systems will achieve compliance.
Shareholders will be kept informed of the progress on this important issue.
Sd/-
S. VIQAR SALAHUDDIN
General Manager & Chief Executive
Pattern of holdings of the shares held by
Shareholders as at June 30, 1998
No. of						Total
Shareholders			Shareholding			Shares Held
459	FROM	1	TO	100	SHARES	18,037
650	FROM	101	TO	500	SHARES	178,157
294	FROM	501	TO	1000	SHARES	222,546
448	FROM	1001	TO	5000	SHARES	904,628
37	FROM	5001	TO	10000	SHARES	234,904
11	FROM	10001	TO	15000	SHARES	129,078
3	FROM	15001	TO	20000	SHARES	53,547
4	FROM	20001	TO	25000	SHARES	88,131
1	FROM	25001	TO	30000	SHARES	27,949
1	FROM	30001	TO	35000	SHARES	33,366
1	FROM	35001	TO	40000	SHARES	35,433
3	FROM	40001	TO	45000	SHARES	124,847
4	FROM	45001	TO	50000	SHARES	187,132
2	FROM	50001	TO	55000	SHARES	107,414
2	FROM	55001	TO	60000	SHARES	113,533
1	FROM	60001	TO	65000	SHARES	60,766
--	FROM	65001	TO	80000	SHARES	--
1	FROM	80001	TO	85000	SHARES	84,933
--	FROM	85001	TO	90000	SHARES	--
1	FROM	90001	TO	95000	SHARES	90,733
--	FROM	95001	TO	110000	SHARES	--
--	FROM	110001	TO	115000	SHARES	--
--	FROM	115001	TO	125000	SHARES	--
1	FROM	125001	TO	130000	SHARES	127,400
--	FROM	130001	TO	165000	SHARES	--
1	FROM	165001	TO	170000	SHARES	165,200
--	FROM	170001	TO	195000	SHARES	--
1	FROM	195001	TO	200000	SHARES	200,000
--	FROM	200001	TO	205000	SHARES	--
1	FROM	205001	TO	210000	SHARES	206,600
--	FROM	210001	TO	280000	SHARES	--
1	FROM	280001	TO	285000	SHARES	283,501
--	FROM	285001	TO	295000	SHARES	--
1	FROM	295001	TO	300000	SHARES	300,000
--	FROM	300001	TO	355000	SHARES	--
1	FROM	355001	TO	360000	SHARES	355,142
--	FROM	360001	TO	1790000	SHARES	--
1	FROM	1790001	TO	1870000	SHARES	1,794,069
--	FROM	1870001	TO	1875000	SHARES	1,872,954
1	FROM	1875001	TO	2395000	SHARES	--
--	FROM	2395001	TO	2400000	SHARES	2,400,000
1	FROM	2401001	TO	3595000	SHARES	--
--	FROM	3595001	TO	3600000	SHARES	3,600,000
1	FROM	3600001	TO	5995000	SHARES	--
--	FROM	5995001	TO	6000000	SHARES	6,000,000
---------------						---------------
1935						20,000,000
==========						==========
Share Holder's Categories			No. of	No. of shares	Percentage
			Shareholders		Issued Capital
Individuals			1,896	2,499,807	12.50
Investment companies			9	435,547	2.18
Insurance companies			8	2,887,043	14.44
Joint stock companies - local			8	3,819,656	19.10
Joint stock companies - Foreign			2	8,400,000	42.00
Financial institutions			6	1,821,001	9.11
Foreign investors			3	95,499	0.48
Modaraba companies			1	133	0.00
Others			2	41,314	0.21
			---------------	---------------	---------------
TOTAL			1,935	20,000,000	100.00
			==========	==========	==========
Ten years at a Glance
			1998	1997	1996	1995	1994	1993	1992	1991	1990	1989
Share Capital		Rs/mn	200.00	200.00	150.00	150.00	150.00	150.00	150.00	120.00	90.00	60.00
Reserves		Rs/mn	63.66	62.53	108.48	86.68	71.64	76.58	84.08	112.40	107.37	99.27
Shareholders'
equity		Rs/mn	263.66	262.53	258.48	236.68	221.64	226.58	234.08	232.40	197.37	159.27
Break up value		Rs	13.18	13.13	17.23	15.78	14.78	15.11	15.61	19.37	21.93	26.55
Dividend per
share		Rs	2.30	2.00	4.00	2.00	4.00	4.50	3.50	3.00	3.00	3.00
Bonus shares			--	--	1:3	--	--	--	--	1:4	1:3.33	1:2
Earnings per
share		Rs	2.36	2.20	5.45	3.00	3.67	4.00	3.61	5.92	7.23	15.54
Sales		Rs/mn	15,294.82	15,937.16	12,276.98	12,233.61	10,733.15	10,488.67	9,558.53	10,856.32	7,773.25	6,369.10
Cost of sales		Rs/mn	15,038.71	15,693.73	12,041.20	11,986.84	10,532.51	10,322.87	9,329.96	10,673.71	7,625.46	6,163.86
Profit after tax and
extraordinary
items		Rs/mn	47.13	44.04	81.81	45.03	55.06	60.00	54.19	71.02	65.10	93.21
Cost of sales as %			98.33	98.47	98.08	97.98	98.13	98.42	97.61	98.32	98.10	96.78
of sales
Profit after tax			0.31	0.28	0.67	0.37	0.51	0.57	0.57	0.65	0.84	1.46
as % of sales
Profit after tax
as % of average
shareholders			17.91	16.91	33.04	19.65	24.57	26.05	23.23	33.05	36.51	76.61
equity
A. F. FERGUSON & CO.			STATE LIFE BUILDING 1-C			Telephones: (021)242 6682-6
CHARTERED ACCOUNTANTS			OFF I. I. CHUNDRIGAR ROAD			(021) 242 6711 - 5
OTHER OFFICES AT			P. O. BOX 4716			Fax: (021) 241 5007 Audit
LAHORE- RAWALPINDI - ISLAMABAD			KARACHI 74000			(021) 242 7938 Tax
			PAKISTAN			Telex: 21155 AFFCO
						E-mail: affco-abs @cyber. net. pk
						affco-tax@cyber. net.pk
AUDITORS' REPORT TO THE MEMBERS
We have audited the annexed balance sheet of Pakistan Refinery Limited as at June 30, 1998
and the related profit and loss account and cash flow statement, together with the notes forming
part thereof, for the year then ended and we state that we have obtained all the information and
explanations which to the best of our knowledge and belief were necessary for the purposes of
our audit and, after due verification thereof, we report that: